Short-Term Return Predictability and Repetitive Institutional Net Order Activity

Journal of Financial Research, (2017) vol. 40, no. 4, 455-477

37 Pages Posted: 14 May 2013 Last revised: 8 Feb 2019

See all articles by Dermot Murphy

Dermot Murphy

University of Illinois at Chicago

Ramabhadran S. Thirumalai

Indian School of Business

Date Written: May 10, 2017

Abstract

Half-hour returns predict same-half-hour returns on subsequent days. We hypothesize that this is due to institutional traders who execute their parent orders over multiple days ("repetitive institutional traders"). Using a unique data set that provides masked trader identification and trader type, we find that the half-hour net order submission activity of repetitive institutional traders is predictive of same-half-hour returns on subsequent days, and that this relationship subsumes the return predictability at shorter intervals. Repetitive institutional traders incur lower transaction costs than their non-repetitive counterparts, suggesting that other traders compete to provide liquidity to the anticipated order flow originating from the repetitive traders.

Keywords: momentum, return predictability, institutional traders

JEL Classification: G10, G12, G14

Suggested Citation

Murphy, Dermot and Thirumalai, Ramabhadran S., Short-Term Return Predictability and Repetitive Institutional Net Order Activity (May 10, 2017). Journal of Financial Research, (2017) vol. 40, no. 4, 455-477, Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.2264704

Dermot Murphy

University of Illinois at Chicago ( email )

2114 University Hall (UH)
601 S. Morgan Street
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United States
312-355-4372 (Phone)

HOME PAGE: http://sites.google.com/site/murphyderm

Ramabhadran S. Thirumalai (Contact Author)

Indian School of Business ( email )

Gachibowli
Hyderabad, Andhra Pradesh 500 032
India
+91 (40) 2318 7151 (Phone)
+91 (40) 2300 7017 (Fax)

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